LC opening for a number of Ramadan items plunged significantly in December, January
It will be impossible to keep the prices of everyday essentials stable during the forthcoming Ramadan if the prevailing dollar crisis and other problems in opening import letters of credit (LCs) are not resolved quickly, the commerce ministry has told the Bangladesh Bank.
Alarmed by a significant drop in LC opening for various commodities in recent months, the commerce ministry has requested the central bank to provide commercial banks with the greenback from its reserve to ease the import of essentials and make sure their supply remains normal this Ramadan slated to begin in March.
The ministry sent a letter to the central bank governor in this regard on Sunday, Senior Commerce Secretary Tapan Kanti Ghosh told The Business Standard.
Although the Bangladesh Bank had assured that the difficulties related to LC opening would be eased in January, there has been hardly any improvement thus far, writes the ministry, adding, “In fact, it has been possible to open fewer LCs for importing edible oil and sugar in January.”
“Businesses are having to pay a lot of demurrage every day due to non-confirmation and non-payment of LCs, causing the cost of importing goods to increase. The Bangladesh Bank needs to provide foreign exchange [from its reserve] for the import of certain products to keep the market stable during Ramadan,” the letter reads.
Businesses told the commerce ministry that import LCs for Ramadan essentials needed to be opened within December and January to ensure their supply at the beginning of the forthcoming Ramadan slated to begin in March, but LC opening for most of these essentials dropped significantly in the past two months compared to the previous year.
Commodity giant City Group has approached various banks to open a $385 million LC for the import of essentials such as edible oil, sugar, and red lentils (masoor dal) this January to meet Ramadan demand, but none of the banks could yet open the LCs due a dollar crunch, said the group’s Executive Director Biswajit Saha.
The same is the case with another leading consumer goods supplier TK Group, its Director Md Shafiul Ather Taslim told TBS, adding, “There has been no significant improvement in the LC situation. We are trying to open LCs for import, the commerce ministry also is trying. Let’s see what happens.”
Even though the banking sector had been going through shortages of dollars since April last year, traders were still able to open LCs until November paying higher for the greenback.
Prime Minister’s Private Sector Adviser Salman F Rahman and Bangladesh Bank Governor Abdur Rauf Talukdar assured businesses that the dollar crisis would end in January. But instead of improving, the situation has worsened since December, said traders.
Time is running out
According to industry insiders, LCs must be opened within the first week of February if a commodity is to be made available in the market a week before Ramadan starts because various products take 15-30 days to arrive after opening of LC.
They added that it takes about 20 days to market palm oil after import, while 45-60 days are needed to refine crude soybean and market it. It takes around two months to refine and market imported sugar.
The demand for some daily commodities including edible oil, sugar, chickpeas, onions, dates, and pulses doubles during Ramadan.
Commerce ministry officials citing the Bangladesh Bank, however, said that the dollar crisis has cut LC opening for some of these products including sugar and chickpeas.
But, there was around a 50% year-on-year jump in dates import LCs in December last, the officials said. Besides, since there is a sufficient supply of locally-grown onions in the market, there is no risk of a shortage during Ramadan, they added.
LC opening for crude soybean oil nearly halved year-over-year in December last. Although LC opening for refined palm oil was close to that of the same period of the previous year, no LC was opened for the import of refined soybean oil and crude palm oil last December. But in December a year ago, LCs were opened for the import of 3,700 tonnes of these two products.
Meanwhile, sugar imports fell by over two lakh tonnes year-on-year in July-December 2022. In December last, LCs were opened for the import of 69,052 tonnes of sugar, compared to 2,05,119 tonnes a year ago.
Another reason for the decline in sugar imports is that China has bought most of the sugar produced in Brazil, mentioned industry insiders. Besides, India has imposed restrictions on sugar exports.
As a result of this, sugar is already being sold in the country’s market at a higher price than the price set by the government.
The picture of the import situation of chickpeas – an almost indispensable iftar item in the country – is also disappointing.
Chickpea imports decreased by 14,164 tonnes YoY in the last six months of 2022. Even then LCs were opened for the import of rather paltry 19,818 tonnes of chickpeas in December last, compared to 72,933 tonnes in the same period a year ago.
Asked about this, Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque, however, told TBS that the central bank is taking necessary steps following the request of the commerce ministry. The central bank is regularly monitoring the LC opening information of companies as well, he added.
Spice shortage feared
Apart from consumer goods, supplies of various spices are likely to be short in Ramadan, said importers.
Haji Majed, an importer of agricultural products and the vice president of Shyambazar Krishipanya Arat Banik Samity, told TBS that one of the major reasons for the decrease in spice imports is that many traders are unable to open LCs with a 100% margin. Again, India and China are controlling exports of ginger and garlic to meet domestic demand.
However, AHM Safikuzzaman, director general of the Directorate of National Consumer Rights Protection, said the prices of ginger and garlic are supposed to increase by 25% in the local market due to the increased price of the dollar, but the products are selling for much higher prices.
If imports are not normalised, it will not be possible to keep the prices of these spices stable because locally produced ginger and garlic will not be enough to meet domestic demand, he observed.
Consumer rights protection directorate monitoring market
About the overall preparation for Ramadan, AHM Safikuzzaman said, “The import situation of a few products, including sugar, is a bit bad. But, we are already monitoring the import, production, and supply situation of the suppliers so that traders cannot take undue benefits. We are active so that dealers or wholesalers cannot stockpile any products after they come out of the mills,” he said.
While addressing a press conference at the directorate’s conference room in the capital’s Karwan Bazar Wednesday, Safikuzzaman, however, said that keeping the market under control might be challenging if the import situation does not normalise.